Judgment Sheet

IN THE HIGH COURT OF SINDH AT KARACHI

First Appeal No. 48 of 2011

Present :

1. Mr. Justice Nadeem Akhtar

2. Mr. Justice Syed Muhammad Farooq Shah

Appellants : M/S Sadia Industries and 3 others,

through Mr. Khaleeq Ahmed, Advocate.

Respondent : Soneri Bank Limited,

through Mr. Azizuddin Khan, Advocate.

Date of hearing : 08.10.2013.

J U D G M E N T

NADEEM AKHTAR, J. – The appellants have filed this appeal under Section 22 of the Financial Institutions (Recovery of Finances) Ordinance XLVI of 2001 (‘the Ordinance’) against the judgment delivered and decree drawn on 16.04.2011 by the Banking Court No.IV at Karachi in Suit No.593 of 2009 filed against the appellants / customers by the respondent / financial institution, whereby the said Suit was decreed with costs against the appellants in the sum of Rs.2,929,843.00 with cost of funds thereon from the date of default (31.03.2009) till realization of the decreed amount. A decree was also passed in favour of the respondent for sale of the immovable property mortgaged by the appellants in favour of the respondent.

2. The relevant facts of the case are that the above mentioned Suit was filed in December 2009 by the respondent against the appellants under Section 9 of the Ordinance for recovery of Rs.2,929,843.11 with cost of funds thereon from 01.04.2009. The respondent had also prayed for a final decree for the sale of the immovable property mortgaged in its favour by the appellants. Appellant No.1 was a partnership firm, and appellants 2 to 4 were the partners of the firm. It was the case of the respondent that the appellants applied for a running finance facility of Rs.5.000 million, which was sanctioned by the respondent, and accordingly, a finance agreement was executed by the parties. In order to secure the repayment of the finance facility, the appellants executed on 20.12.2004 a demand promissory note, a letter of hypothecation, their separate personal guarantees. They also executed a registered mortgage and created an equitable mortgage of an immovable property in favour of the respondent by executing a memorandum confirming deposit of title deeds. The appellants also executed a general power of attorney on 20.12.2004 empowering the respondent to sell the mortgaged property. The facility was fully availed by the appellants, and in the year 2006, the same was enhanced by Rs.2.500 million at their request, thereby making the total finance facility to Rs.7.500 million. As per the agreement, the last renewal was valid till 31.03.2009. It was averred by the respondent in its plaint that the total finance of Rs.7,500,000.00 was availed by the appellants ; the total amount repaid by them from time to time was Rs.4,570,157.00 ; the entire markup of Rs.1,429,843.00 was paid by them till 31.03.2009 ; and, a sum of Rs.2,929,843.11 was outstanding against them towards the principal amount as at 30.06.2009.

3. Appellant / defendant No.3 did not file his application for leave to defend the Suit, and as such the Suit was ordered to be proceeded ex-parte against him. Appellants / defendants 1, 2 and 4 filed their joint application for leave to defend the Suit, wherein they denied having committed default in fulfilling their obligations, and they also denied the claim of the respondent. It was alleged by them that the statement of account filed by the respondent was false and fabricated ; no statement of account was filed by the respondent in respect of markup ; and, most of the amounts payable by them had been paid by them. It was further alleged by the said appellants that their signatures were obtained by the respondent on blank documents, which were subsequently filled up by the respondent arbitrarily and without their consent. It was also alleged by them that the markup charged and debited by the respondent was illegal. It was stated by them in their application that only a sum of Rs.82,420.00 was payable by them to the respondent. On the basis of the above allegations, it was claimed by the said appellants that they had raised substantial questions of law and fact requiring evidence in the matter, and as such unconditional leave to defend the Suit be granted to them.

4. Replication was filed by the respondent, wherein specific preliminary objections regarding the maintainability of the application for leave to defend the Suit were raised, such as, the appellants had not denied the execution of the documents as well as the availing and utilization of the finance facility ; they had not complied with the mandatory requirements of Sub-Sections (4) and (5) of Section 10 of the Ordinance, due to which their application was liable to be dismissed straightaway ; and, no specific debit entry in the statement of account was pointed out by the appellants which, according to them, was unauthorized or illegal. In addition to the preliminary objections, the respondent denied the assertions and allegations made by the appellants in their application, and stated that they had in fact admitted their liability through correspondence and had promised to settle the same. It was prayed that in view of the objections raised by the respondent and also in view of the admissions made by the appellants, their application be dismissed and the Suit be decreed.

5. Vide order dated 18.10.2010, the application for leave to defend the Suit filed by appellants 1, 2 and 4 was dismissed by the learned Banking Court, and the parties were directed to file break-up of their statements of account, which were filed. Thereafter, vide impugned judgment delivered and decree drawn on 16.04.2011, the respondent’s Suit was decreed by the learned Banking Court with costs against the appellants in the sum of Rs.2,929,843.00 with cost of funds thereon from the date of default (31.03.2009) till realization of the decreed amount, and a decree for sale of the mortgaged property was also passed.

6. Mr. Khaleeq Ahmed, learned counsel for the appellants, contended that the respondent had not filed the complete statement of account ; there were serious irregularities in the statement of account ; the respondent had charged and debited markup over markup as well as unauthorized and illegal amounts and penalties ; the appellants had settled almost the entire amount and only an amount of Rs.82,420.00 was payable by them ; the payments made by the appellants were not disclosed by the respondent in the statement of account ; and, no fresh disbursement was made by the respondent at the time of the renewal. He further contended that the learned Banking Court did not appreciate the fact that the appellants had filed a Suit against the respondent for declaration, rendition of accounts, damages and injunction, which was subjudice. He argued that the material on record was not appreciated by the learned Banking Court, and the appellants were entitled to an unconditional leave to defend the Suit as they had raised substantial questions of law and fact which required evidence. It was urged that the respondent’s Suit could not be decreed in the above circumstances. In support of his submissions, the learned counsel relied upon the cases of Mushtaq Ahmed Vohra V/S Crescent Investment Bank Limited, 2005 CLD 444, and Messrs Shaz Packages and 3 others V/S Messrs Bank Alfalah Limited, 2011 CLD 790.

7. On the other hand, Mr. Azizuddin Khan, learned counsel for the respondent, strongly supported the impugned judgment and decree, and prayed for the dismissal of this appeal. He submitted that since the appellants did not comply with the mandatory requirements of Sub-Sections (4) and (5) of Section 10 of the Ordinance, their application was liable to be dismissed on this ground alone. Without prejudice and in addition to his above submission, the learned counsel contended that the assertions and allegations made by the appellants in their application were vague and evasive, and they had not placed any material on record to substantiate the same. He further contended that on the contrary, the respondent had placed on record sufficient material in order to substantiate its claim and to belie the false and malafide stance taken by the appellants. During the course of hearing, learned counsel for the respondent placed before us an undertaking executed on 03.09.2008 by the appellants, which was taken on record with the consent of the learned counsel for the appellants. In this undertaking, it was admitted by the appellants that a sum of Rs.8,417,497.00 was outstanding against them as at 03.09.2008 ; and, the public auction of the mortgaged property under Section 15 of the Ordinance had been deferred by the respondent at their request and unconditional assurance that the entire outstanding liability shall be settled by them in instalments by 31.12.2008. The learned counsel invited our attention to letters issued by the appellants on 04.04.2008 and 10.06.2008 to the respondent, wherein they had admitted default and had promised to settle their liability. It was urged that the material on record and the pleadings of the parties were examined and appreciated in their true perspective by the learned Banking Court, and as such the impugned judgment and decree do not call for any interference by this Court. In support of his submissions, the learned counsel cited and relied upon the cases of Messrs Agha Fabrics (Pvt) Limited and 3 others V/S Union Bank Limited and another, 2004 CLD 915, Messrs New Qureshi Agro Traders through Managing Partner and 2 others V/S Muslim Commercial Bank Ltd., 2005 CLC 904, and an unreported judgment delivered on 22.02.2013 by a learned Division Bench of this Court in Special High Court Appeal No.16/2011 (Elite Publishers Limited and others V/S Soneri Bank Limited).

8. We have heard the learned counsel for the parties and have carefully examined the record with their assistance, especially the impugned judgment and decree and the impugned order dated 18.10.2010 whereby the appellants’ application for leave to defend the Suit was rejected. We have noticed that while dismissing the application, it was observed by the learned Banking Court in the impugned order dated 18.10.2010 that the appellants had not denied that the running finance facility of Rs.7.500 million was granted to them and the same was availed by them. It was also observed in the impugned order that the appellants had not denied their signatures on any of the documents filed and relied upon by the respondent. The assertion of the appellants that their signatures were obtained by the respondent on blank documents was rejected by the learned Banking Court by holding that there was nothing on record in support of this verbal assertion, and the appellants never took any action against the respondent for such alleged illegal action. Relying upon Muhammad Arshad and another V/S Citi Bank N.A., Lahore, 2006 SCMR 1347, it was held by the learned Banking Court that the moment the signature is admitted by a party on any document, the party becomes bound by the contents thereof unless the contrary is proven. Regarding the claim of the respondent, it was held in the impugned order that the statement of account contained all the relevant credit and debit entries, which prima facie appeared to be correct, as the appellants had failed to point out any entry in order to show that the respondent had claimed or charged markup over markup. It was noticed by the learned Banking Court that the cheques issued in favour of the respondent by the appellants to settle their liability, copies whereof were on record, were dishonoured upon presentation. In the given circumstances, we feel that the impugned order is a speaking and well-reasoned order, and it was passed with full application of mind and after fully appreciating the material on record.

9. A perusal of the impugned judgment shows that, after dismissal of the appellants’ application for leave to defend the Suit, the judgment was not delivered in a mechanical or slipshod manner, but all the relevant facts and important aspects of the case were fully discussed therein by the learned Banking Court. It was observed in the impugned judgment that the documents filed and relied upon by the respondent were executed by the appellants ; the facility was availed by them ; the facility was enhanced and fresh charge documents were executed ; markup of Rs.1,429,843.00 for the agreed period was paid by the appellants ; and, after deducting the markup paid by the appellants and the payments made by them towards the principal amount, an amount of Rs.2,929,843.00 was payable by the appellants. We have noticed that the respondent had not claimed any amount towards markup, penal charges, penalty, liquidated damages, etc., but had claimed in its Suit only an amount of Rs.2,929,843.11 towards the outstanding principal amount. The decree was passed by the learned Banking Court only to the extent of the aforementioned outstanding principal amount claimed by the respondent. It is important to note that the appellants had not alleged anywhere in their application for leave to defend the Suit that they had settled the principal amount, and all the objections and allegations raised by them were in relation to markup over markup, illegal and unauthorized charges, penalties etc. Thus, we are of the considered opinion that the decree passed by the learned Banking Court in the above circumstances was fully justified.

10. In compliance of the impugned order dated 18.10.2010, the appellants filed the breakup of their statement of account on 31.01.2011. We have noticed that in the said statement they had disclosed that they were liable to pay Rs.322,960.11 to the respondent ; whereas in their application for leave to defend the Suit, they had claimed that they were liable to pay a sum of Rs.82,420.00 to the respondent. This discrepancy in their own application and statement, which were on record before the learned Banking Court, also leads us to the conclusion that the assertions made by the appellants in relation to the accounts were not correct and their application was rightly dismissed followed by passing of the decree against them.

11. During the course of hearing, learned counsel for the appellants was asked by us to highlight all such amounts / debit entries in the statement of account which, according to the appellants, pertain to markup over markup, illegal and unauthorized amounts, penalties, etc., but were not considered by the learned Banking Court. The learned counsel was unable to identify any such amount or debit entry. On our query, the learned counsel for the appellants conceded that before filing of the Suit by the respondent, the appellants never alleged that any of the above were being charged or debited by the respondent, nor were the amounts charged and debited by the respondent were disputed. He had also no reply to our query as to why the appellants through their letters dated 04.04.2008 and 10.06.2008 had admitted default and promised to settle their liability, if they were not liable to pay the amount claimed by the respondent. In view of the execution of documents and admission of liability by the appellants, the cases relied upon by the learned counsel for the appellants are of no help to him. On the contrary, the cases of Messrs Agha Fabrics (Pvt) Limited and Messrs New Qureshi Agro Traders (supra) relied upon by the learned counsel for the respondent, are fully applicable in the instant case. In the cited cases, it was held inter alia by two separate learned Division Benches of the Lahore High Court that the Banking Court had rightly drawn inference that the entire amount claimed by the plaintiff bank stood established as payable as the execution of finance agreement and signatures on the documents annexed to the plaint, had not been denied ; and, in view of the letters written by the customer to the bank acknowledging its debt and asking for further time for repayment, and issuance of cheques in favour of the bank, the Suit was rightly decreed by the Banking Court. Similar view was taken recently by a learned Division Bench of this Court in the case of Elite Publishers Limited (supra) cited by the learned counsel for the respondent.

12. As far as the allegation of the appellants that their signatures were obtained by the respondent on blank documents is concerned, the learned Banking Court was fully justified in relying upon the case of Muhammad Arshad (supra), wherein the Hon’ble Supreme Court was pleased to hold that “where one person signs and delivers to another paper stamped in accordance with law, either wholly blank or having written thereon incomplete negotiable instrument, in order that it may be made, or completed into negotiable instrument, he thereby gives prima facie authority to person who receives that paper to make and complete it as case may be into negotiable instrument for any amount”. In fact, the learned Banking Court would have failed in its duty if the above authority had not been applied in the present case.

13. Under Section 10(4) ibid, the appellants were duty-bound to disclose in their application for leave to defend the Suit, (a) the amount of finance availed by them from the respondent, (b) the amounts paid by them to the respondent and the dates of payments, (c) the amount of finance and other amounts relating to the finance payable by them to the respondent up to the date of institution of the Suit, and (d) the amount, if any, which they had disputed as payable to the respondent, and the facts in support thereof. In the most recent authoritative pronouncement of the Hon'ble Supreme Court in the case of Apollo Textile Mills Ltd. and others V/S Soneri Bank Ltd., PLD 2012 Supreme Court 268 = 2012 CLD 337, it has been held that the plaintiff institution and the defending customer have identical statutory responsibility respectively under Sections 9(3) and 10(4) of the Ordinance, to plead and state clearly and particularly the finances availed by a defendant, repayments made by him, the dates thereof, and the amounts of finance repayable by such defendant, who is saddled with an additional responsibility to also specify the amounts disputed by him. It has been further held that a defending customer is obliged to put in a definite response to the bank’s accounting and has under Sub-Sections (3) and (4) of Section 10 of the Ordinance to compulsorily plead and answer in the application for leave to defend his accounts as well as the facts and amounts disputed by him as repayable to the plaintiff. It has been further held that a banking Suit is normally a Suit on accounts which are duly ledgered and maintained compulsorily in the books of accounts under the prescribed principles / standards of Accounting in terms of the laws, rules and banking practices ; as such instead of leaving it to the option of the parties to make general assertions on accounts, the Ordinance binds both the sides to be absolutely specific on accounts ; and the parties to a Suit have been obligated equally to definitely plead and to specifically state their respective accounts. It has been specifically held that non-impleadment of accounts under Sub-Sections (3) and (4) ibid in terms thereof, entails legal consequences under Sub-Sections (1), (6) and (11) of Section 10 ibid. It has been further held that because of the Ordinance being a special law, the provisions of Section 4 thereof override all other laws ; the provisions contained in the said Sections require strict compliance ; and, non-compliance therewith attract consequences of rejection of the application for leave to defend along with decree.

14. In their application, the appellants did not state any such amount that was disputed by them, as required under Section 10(4)(d) ibid. They also did not file the documents which, in their opinion, supported the substantial questions of law and fact, as required under Section 10(5) of the Ordinance. We, therefore, agree with the learned counsel for the respondent that the appellants did not comply with the mandatory requirements of Sub-Sections (4) and (5) ibid. At the time of filing the application for leave to defend, the appellants had full opportunity to comply with the mandatory requirements of Section 10(4) and (5) ibid, but as they failed in availing such opportunity, they are bound to face the consequence of their non-compliance. In view of the law laid down in Apollo Textile Mills Ltd. (supra), the application for leave to defend filed by the appellants was liable to be dismissed in any event.

15. In view of the above discussion, we do not find any infirmity or illegality in the impugned judgment and decree, and as such the same do not require any interference by this Court. Accordingly, this appeal is liable to be dismissed.

Foregoing are the reasons of the short order announced by us on 08.10.2013, whereby this appeal and C.M.A. Nos. 1129/2011 and 1696/2011 filed by the appellants were dismissed with no order as to costs.

J U D G E